So control is unrelated to ownership; does this change the mechanics of companies based on their type? (C or S corps, LLC... etc) For instance, I thought ownership in an LLC reflected control as well.
So if votes count with equal weight, then letting other people in to the "ownership" of a company could be disastrous to the founders. A third, less knowledgeable but opinionated, party in the voting could totally destabilize the company if it threw its weight around.
It is counter initiative! I done lots of these analyses and I've learned to just run the numbers, because intuition is often wrong ( though you can usually understand it in retrospect )
On control and ownership, if you tell me one shareholders percentage ownership, I still know nothing about thier control(unless they own more than 50%). So in this sense, a single shareholder's ownership is undelated to thier control. Now if you tell me all the shareholders ownership, then we know about control.
Your right control over an LLC works generally the same way as C Corp. This measure works regardless of corporate structure. We've even used it to measure control on a board of directors. The things that require accounting for are how the voting system works. For example is the criteria to win a vote 50% or 66%. Is it 50% of all shares, or of shares that bother to vote?
I almost understand what you mean, but my intuition keeps tripping me up.
Say there's an LLC with 3 owners: 70%, 20%, and 10%. All members get 1 vote (unless I'm missing something). So how does the ownership relate to their control? What's implied by basic math is that 3 votes equals roughly 33% control each, assuming all votes are in (and for/against). But what you showed in your article appears to disprove that.
You've gotten enough of my attention for me to subscribe to your blog, though.
Ah the three person system! You can really understand a lot of this by digging into it, so you are thinking along the right track! If you like we can have a chat by phone. Otherwise I think I can answer a lot of your questions and others by writing a post on the three person example, so you could wait for that too.
But a brief answer:
1) Whether each gets one vote depends on the LLC. It should outlined in the operating agreement. (Our company is considering adopting a voting system that actually equalizes ownership and control, a surprisingly hard thing to engineer! but once you've decided on it you can just amend the operating agreement.)
2) Lets say that is true, each of the three people gets one vote. Then you are right that they each have equal power, but if memory serves it actually amounts to 50%, not 33%. (un-intuitive right!)Meaning each person has a deciding/swing vote in half of the 8 possible outcomes.
So if votes count with equal weight, then letting other people in to the "ownership" of a company could be disastrous to the founders. A third, less knowledgeable but opinionated, party in the voting could totally destabilize the company if it threw its weight around.
This seems counter-intuitive.